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[CBRE HK Q4 MV] Retail: Street Shop Market Remains Lacklustre

Joe Lin, Executive Director, Retail Services, CBRE Hong Kong ​commented, “The
number of surrender leases could increase towards the end of Q1 2016 following
the end of the festive season. As such, landlords may face greater pressure to
decrease rents as early as late Q1 2016. The rental down-cycle could persist
for the next two years as downward adjustments gradually occur upon lease
expiry.”

​CBRE Outlook Q1 2016

Mid-market retailers will remain the main demand driver for retail space.
Some will look to re-establish themselves in prime locations and/or expand
their store networks.

Hong Kong will remain a key market for luxury brands. However, these
retailers will likely consolidate and/or upgrade their shops in prime
locations.

Lower tier streets will experience higher rental pressure
as
tier one locations continue to be preferred.

The pace of rental decline will be more rapid in
core areas such as Tsim Sha Tsui, as many leases in these districts will
expire this year. Rental decrease in Causeway Bay will be milder in 2016.

The
Competition Ordinance implemented in December 2015 has yet to
significantly impact the retail market. However, smaller retailers may lose
their competitive edge in the long-term.

Retail rents on tier one streets are expected to decline
by 10%-15%
in 2016.

CBRE Highlights Q4 2015

Total
retail sales declined 3.1% y-o-y over the first 11 months of 2015, while that
of watches and jewellery plunged 15% y-o-y for the same period. The strong HKD
continued to encourage tourists and locals to spend outside of the city.

Less
surrender leases were recorded in Q4. Retailers generally prefer not to forego
business during peak consumption periods.

Several
major transactions for tier one locations were completed by non-luxury brands.

Leasing
demand in Q4 was less subdued than in the previous quarter, but leasing
activity by high-end brands remained limited.

Landlords
of tier one street shops became more willing to offer rental discounts to
potential tenants.

Overall
rents fell by 2.0% q-o-q in Q4, resulting in a 17% decline for the whole of
2015. Rents in Causeway Bay slumped 24% y-o-y over the year, while rents in
Central, Tsim Sha Tsui and Mong Kok recorded double-digit decline in 2015.